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backGLOBALtalk July, 2012
USA-CANADA: Respect the Border: Best Practices for Successful Cross-Border Moves
Blame it on the border. Were it a deep expanse of ocean separating the U.S. from Canada instead of the world’s longest land border, the country might seem a more distant, far-flung locale. But nestled right atop the U.S.—“It’s like America’s hat,” my Uncle Lenny used to say—Canada is often perceived by Americans as a country not all that different from our own, albeit colder and more hockey-obsessed.
It’s a sentiment that too often extends to corporate relocation programs. When U.S.-based companies send employees on overseas assignments, the planning usually includes consideration of cultural preparation and assimilation, not to mention a specific international assignment policy. When these same companies move employees to Canada, however, the process can sometimes involve nothing more than retrofitting a domestic policy or conjuring something on the spot as each situation dictates. Such an approach not only sells short the countries in question, it does a disservice to the valued talent you’re moving.
Canada: It Really Is a Different Country
For U.S.-based companies, successful cross-border moves require acknowledging that Canada isn’t the 51st state. It sounds simple enough, but a lot of companies can’t seem to see past Canada’s proximity. This is why their cross-border policies appear better suited to moves from one side of the U.S. to the other, rather than to a country with unique and distinct cultural, business, and settling-in differences.
To improve your company’s chances of successful cross-border moves, consider the following best practices:
Don’t start a cross-border move without a proper policy and process to support it. A dedicated cross-border policy is something heartily endorsed by Stephen Cryne, president and CEO of the Canadian Employee Relocation Council (CERC).
“There are many differences between Canada and the U.S., and using a specific policy to make those transfers successful is highly recommended,” explains Cryne. “Our experience tells us that companies that try to apply domestic policy to cross-border or international moves are more likely to have questions and complaints from employees. This is most often where policy is made on the fly in an ad-hoc fashion resulting in inconsistent policy application and ongoing exceptions.”
Where a domestic policy is used for a cross-border relocation, there are bound to be gaps that create a more difficult transition for your employees and their families. Your company might also inadvertently ignite immigration and tax compliance issues.
Don’t initiate a cross-border move without commencing the visa/immigration process. The closeness of the U.S. and Canada can sometimes blind companies to the fact that cross-border immigration can be as convoluted and detail-centric as it is for overseas assignments. Without the proper paperwork, household goods can’t be shipped, U.S.-bound employees can’t register utilities, and a host of other issues can arise (see “What If My Employee Isn’t Allowed Into Canada?”).
Although both the U.S. and Canadian governments have taken steps to ensure compliance in the management of their cross-border transfers and travel, a recent CERC survey of employers in both countries that have cross-border moves identified compliance with immigration regulations and differing rules between the two jurisdictions as key challenges. More than three-quarters of the respondents found compliance processes difficult to manage when dealing with work permits and visa requirements.
“A theme throughout that survey—and one supported extensively by comments from participants—is the inconsistency that exists in decision-making between border officials,” Cryne says. “As one participant commented, ‘Currently, it depends on the time of day, the border you cross, and which border official you get as to how they interpret the rules.’ This situation creates frustration and unnecessary red tape in the efficient movement of personnel.”
This issue is currently being addressed. In early 2011, President Barack Obama and Prime Minister Stephen Harper issued “Beyond the Border: A Shared Vision for Perimeter Security and Economic Competitiveness.” This declaration launched a strategic initiative between the U.S. and Canada to enhance border security while streamlining the flow of people, goods, and services between countries.
Last summer, various government agencies involved in “Beyond the Border” consulted with business groups and stakeholders in both countries to develop an action plan. Worldwide ERC and CERC submitted a series of recommendations to those agencies, based on the results of a survey of private-sector employers that regularly relocate employees cross-border. Several of these recommendations have been adopted into the action plan, and if they are implemented, they are expected to bring greater consistency, productivity, and economic benefits to these relocations.
Do engage a tax provider for cross-border moves. Complications can arise when relocating across borders and breaking residency status. The IRS pays particularly close attention to worldwide income; the timing of the relocation and residency should be reviewed with a tax expert knowledgeable on both Canadian and U.S. tax laws.
Do follow Worldwide ERC’s key elements of a homesale program when moving an employee from Canada to the U.S. Homesale expenses are considered a taxable benefit in the U.S. unless the process complies with the 11 key elements established by Worldwide ERC. Even when the home is located in Canada, the IRS would view the expenses as a taxable event based on worldwide income, translating into a significant increase in tax gross-up costs, unless the 11 key elements are followed on the Canadian property.
Don’t assume that moving across the border is a simple process for your transferee and family. Again, the proximity of the two countries can sometimes mislead companies to underestimate the cultural differences that exist between the U.S. and Canada—differences that could make it exceptionally tough for your employees and their families to adjust and achieve full productivity.
“I think it’s fair to say that companies sometimes underestimate the differences,” Cryne says, “and for employees moving into, say, the province of Quebec, the differences are far greater. For these reasons, it would be much better to have specific policies in place to support employees and to alert them and their family members to those differences.”
Peggy Smith, CEO of Worldwide ERC, echoes these sentiments. “Differences between the U.S. and Canada are not always readily apparent, and companies may not see the nuances of assistance that can ease the move for employees,” Smith says. “It’s similar to when an expat goes from the U.S. to China for three to five years, then returns home. We hear repeatedly that the repatriation policy needs to include a destination services/cultural benefit for those returnees, as often things have changed in the home country.”
As Cryne explains, one of the most common misconceptions that he hears is that the U.S. and Canada are so similar that moving from a city like New York to Vancouver is no different than moving from New York to Chicago.
“While there are many similarities—we enjoy much of the same food, live in houses that are of similar style and design, and enjoy many of the same sports and television programs—there are noticeable differences in culture and how we do business,” says Cryne. He cites Canada’s multiculturalism and politics (same-sex marriage is recognized across Canada, for example) as just two key differences.
Of note to relocating employees, Cryne points out that while both Americans and Canadians aspire to homeownership, there are major differences in the approach to financing and tax treatment of interest payments on principal residences. For example, Canadians cannot deduct mortgage interest payments. Also, Canadians are taxed at much higher rates than residents of the U.S. and generally pay much higher prices for most goods and services as a consequence of the Canadian market size.
Do use a household goods provider experienced in cross-border moves. Each side of the border maintains specific regulations as to what can or cannot be shipped. In addition, cars may require modification to enter each country based on safety and emissions standards set by the Department of Transportation (U.S.) or Ministry of Transport (Canada). An experienced household goods company can advise your employees appropriately to avoid any last-minute surprises.
Do be aware that government clearance certificates must be obtained for the employee’s home, as required by the Canadian and U.S. governments. Should the employee become a non-resident of Canada, the Canadian Revenue Agency needs to review an application to avoid withholding a percentage of the sale price of the property. This is to ensure that income taxes are current and that the home was a principal residence under the Income Tax Act.
Don’t assume that Canadians moving to the U.S. will have easy access to credit. Without a U.S. credit history, obtaining a mortgage in the U.S. can be a frustrating process. Having a national lender program in place can prepare the employee for the unique differences between Canada and the U.S. as it pertains to financing and help them close a new home loan.
Do use the right forms. Did you know that CERC and Worldwide ERC have their own distinct appraisal, broker market analysis, inspection, and disclosure forms? Each market has unique requirements, and best practice is to ensure that local custom is considered in the policy.
Do provide interim medical coverage for employees moving to Canada. Health care is another area of considerable difference between the U.S. and Canada. Whereas U.S. residents can access private health care services from a wide range of providers, public health care in Canada can result in long waiting times—often up to three months—and limited access to services. Alternative coverage arrangements may be needed to bridge the gap for your employees.
Is the Tide Turning?
As these best practices have hopefully illustrated, cross-border moves demand a very special sort of attention. But companies still seem slow to take heed. According to Cryne, a recent CERC survey of relocation policies revealed that the number of companies having a written policy for cross-border moves dropped 15 percent from 2009. Over the same time period, the number of companies managing cross-border moves on an ad-hoc basis jumped from 4 percent to 21 percent. Thirty percent of companies reported having one global policy, which appears to be an approach that is becoming more widely used.
While every company’s approach will be different, helping your employees better understand the unique differences that exist between the U.S. and Canada—and providing these employees with more efficient and effective destination and settling-in services for cross-border moves—will undoubtedly pay dividends.
“What if my Employee Isn’t Allowed Into Canada?”
In the wake of 9/11, the U.S. and Canada share access to each other’s criminal databases to better monitor those moving across their borders. With this free flow of information, some would-be transferees have discovered the hard way that a brush with the law in the U.S.—even something that may have been dismissed—could make them “criminally inadmissible” to Canada. This is particularly evident when it comes to driving under the influence. While the U.S. does not deny entry based on a single DUI conviction, Canada does not allow persons with DUIs to enter the country.
As many employees are not aware of this—and as many employees may not be willing to share details of a DUI arrest with their employers—inadmissibility issues may not be discovered until the employee arrives at the border.
To avoid problems, Julie Lessard, partner with BCF Law in Montreal, recommends that companies ask employees relocating cross-border into Canada for a signed statement attesting that they have no arrests or convictions that could make them inadmissible. Lessard suggests this for Canadian companies sending employees to the U.S. as well, albeit for different reasons.
“If a Canadian company sends an employee to the U.S. with a company car and company tools, and that employee has a criminal record, the car and tools might be seized at the border,” Lessard says. “To get them back, the company would have to prove that it wasn’t aware of the employee’s criminal record. If the company has a written statement, at least it can show that efforts were made to discover this information. If not, the company could be construed as trying to help someone illegally enter the U.S.”
Source: MOBILITY Magazine - GAI
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